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Technology and Corporate Governance

Technology and Corporate Governance

Technology and Corporate Governance

Digital technologies and digital transformation is shifting the way our economy is functioning, our social relationships are structured and decision taking processes are shaped. Technological developments are also envisaging corporate organizations, currently highly centralized entities with formal and informal procedures and processes, often slowing decision taking processes and creating information asymmetries. Technology can drive change of corporations. This resource section relates to research and debate on the use of technology in corporate governance. A separate resource section exists for the governance of companies in the technology sector.

First, distributed ledger technology (DLT) and blockchains can ensure that the data is stored in a verifiable and immutable way, and there is no longer any need for an intermediary to establish trust between the company and shareholders. A permissioned distributed ledger can also constitute a set of rules for shareholder voting, including majority requirements and access rights, so that shareholders can exercise their rights in accordance with the applicable corporate law framework and the company’s articles of association. Blockchain technology can harmonize shareholder engagement opportunities by offering a common discussion platform for shareholders and board members. Decentralization can also affect the work of the corporate board. Ultimately a decentralized autonomous organization (DAO) is a governance system that work with smart contracts and could have the ability to take over (part of) the work of the centrally designated board.

Next, artificial intelligence (AI) is more and more used in different ways including artificial neural networks, fuzzy systems, evolutionary computing, intelligent agents and probabilistic reasoning models. These tools are helpful for the analysis of data trends, the provision of forecasts, the anticipation of users’ data needs, and so on. AI helps to make and shape the decision taking process and has the ability to support and even replace of human decision-making, particularly under conditions of uncertainty. It already resulted in the use of a robo-director Vital with a board observer status.

In November 2018 an ECGI Roundtable on technology and corporate governance centred on the use of technologies such as DLT and smart contracts, and artificial intelligence (AI) and machine learning, in the corporate governance context (https://ecgi.global/content/technology-and-corporate-governance). The roundtable identified many different relationships between companies and shareholders and showed that DLT offers opportunities for optimizing these relationships. Further it was shown that AI contributes the monitoring and synthesizing of information, risks, compliance etc. Second, AI is a helpful tool for simulations and scenario planning and the standard of care of directors can start to include an appreciation of the strength and weaknesses of AI tools.

All these developments clearly pose new questions, such as: Does blockchain have promise as a tool for registering ownership claims and the exercise of voting rights in listed corporations? What is the impact of AI and big data analysis on firms’ management and governance? Will smart contracts affect the boundaries between firms and markets in a number of industries? Could robo-directors be elected to the board?

ECGI will continue to track the progress of research in this area and related developments. Additional resources will be made available through these pages.

Armour, John and Enriques, Luca and Ezrachi, Ariel and Vella, John, Putting Technology to Good Use for Society: The Role of Corporate, Competition and Tax Law (November 20, 2018). European Corporate Governance Institute (ECGI) - Law Working Paper No. 427/2018. Available at SSRN: https://ssrn.com/abstract=3287696 or http://dx.doi.org/10.2139/ssrn.3287696

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